Editors note: this is a translated and edited version of an article that appeared in the People’s Daily. The article criticises the subjectivity and shortsightedness of a recent report that claimed that Beijing had become more expensive to live in than New York City. A statement that no doubt hit a nerve with many Chinese who are growing increasingly concerned about the cost of living in Beijing, and throughout the country.

In recent years, reports detailing the cost of living in Beijing versus the cost of living in New York City have been receiving a lot of attention. These reports, which compare the cost of living in various cities around the world, show that some Chinese cities like Beijing have overtaken American cities like New York in living expenses, with even a meal at KFC costing more in China.  

But are commodity prices in China truly higher? A reporter for the People's Daily asked an American residing in New York City and a Chinese residing in Beijing to check prices in their respective cities, to see if this report was the real deal.

Beijing: imports are pricy; "luxury goods” are insanely expensive

According to the report, if ordinary consumer goods in China were from a foreign brand, they are more expensive in Beijing than NYC. For example, Levi's jeans cost 699-899 RMB in Beijing compared to 70-90 USD (455-585 RMB) in NYC. While this is accurate, if sales discounts are taken into account, this comparison looses credibility, as one can get Levi's in Beijing at wholesale markets (like the one by the Beijing Zoo) for nearly half the price as they cost at the mall.

Oddly, even many "Made in China" goods are more expensive in China than in the United States. According to Gao Peiyong, the director of the Finance and Trade Institute at the Chinese Academy of Social Sciences, this price difference is due to China's tax structure. China uses indirect tax methods, while Western countries use direct tax methods. In layman’s terms, this means that products entering the Chinese market are hit with many taxes before they are even sold, not to mention that the logistics costs in China are relatively high, which both add to an item’s shelf price.

The report shows that foreign luxury goods are ridiculously expensive in China. But, according to a Professor at the Foreign Trade University in Beijing, "prestige pricing" and the "price discrimination" in China makes luxury goods much more expensive than in other countries. The "prestige pricing" describes the consumer mentality that paying more both gets you the best-quality goods, and adds to the prestige of that consumer. Additionally, "price discrimination" is based on a consumers’ willingness to pay different prices in different markets for the same item. In China, because many consumers "worship foreign goods", foreign distributers are able to jack up the prices of imported goods and Chinese consumers will still be willing to buy them.

NYC: public transportation, labour-intensive services and IP are more expensive

For most New Yorkers and Beijingers, using public transportation is essential. Yet, in NYC, public transportation costs about 10 times as much as in Beijing. Labour-intensive services are also more expensive in NYC. For example, a haircut costs 20-40 USD; in Beijing, you can get your hair cut at a school for just a few Yuan. On average, NYC barbershops are five times as expensive as Beijing’s. The price of medical services (without insurance) in NYC is also more expensive than in Beijing. It costs 200 RMB in Beijing for a doctor’s consultation, and about 500 RMB if you get a shot. In NYC, seeing a doctor costs at least 150 USD (960 RMB). Finally, in the US, "intellectual property rights" items, such as books, movies and music are also much more expensive.

Sino-US price comparisons should be taken with a grain of salt (or rice)

According to experts, the economic structures and income levels of the Beijingers and New Yorkers is quite different, and as such, it is difficult to make a convincing argument that one city is objectively more expensive than the other. The tax structure and taxing methods are quite different between the two countries. In the US, taxes are added to the shelf price of an item when it is purchased; in China, taxes are already included in the shelf price. Lets take the example of Levi's 501 jeans: on the official Chinese website, they cost 799 RMB, and on the official US website they cost 64-98 USD (410-627 RMB), after which a sales tax of 3-9% is added depending on which state you live in (627*1.09=683 RMB). As we can see, after US sales taxes are added, the US purchased jeans are not that much cheaper than in China.

Further complicating matters, the wages of Americans (in NYC), and Chinese (in Beijing) are different. In the United States, the state minimum hourly wage is between 4.1 USD and 8.67 USD. Meanwhile in Beijing, one of the best paying cities in China, the minimum hourly wage is 13 RMB (about 2 USD). With this wage disparity, it makes this kind of price comparison very subjective, as of course products are going to be more expensive in China, since the Chinese consumer's purchasing power is lower than that of the US consumers. Sino-US price comparisons most often look at consumer goods, such as clothing, bags and electronics, which no doubt are more expensive in China than in the United States in many cases. Yet, very few compare the costs of public transit, education, books, music, movies and labour-intensive services, which are greatly more expensive in the United States than in China.

China’s prices "overtaking the United States" originated from inflation worries

There is a saying that "no two leaves in the world are the exact same", which is to say that there are going to be great limitations to any type of cross-country comparison. In the case of China and the United States, the economic structures, tax system and income differences make it difficult to truly reflect these two countries’ commodity price levels and its effects on the consumers. Commodity price, after all, is only one way of measuring the relationship between supply and demand.

Recently, Chinese consumers have been paying close attention to the issue of domestic and foreign prices. But, they have limited themselves to using only select commodities to do a macro-comparison of commodity prices in China and the US. This one-sided analysis has led them to believe that China is already "overtaking the United States". In fact, these claims merely reflect ongoing concerns over high inflation in China, and do not necessarily reflect status quo. There is a huge difference between incomes and purchasing power in China and the US, which in turn makes it appear that China's "general level of pricing" is comparatively low. Nevertheless, how should we ease consumer worries about these rising prices and low-incomes? We should continue to properly manage inflation expectations and do everything possible to increase the income of the public. When low-incomes in China outgrow the "Consumer Price Index" (which measures changes in the price level of consumer goods and services purchased by households), commodity prices will no longer be a hot button issue for Chinese.
 

Source: ifeng.com
 

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